Differences between Bretton Woods world trade regime and the current world trade system governed by the World Trade Organization

by M
on December 27, 2017
in Economics, Politics
with Comments Off on Differences between Bretton Woods world trade regime and the current world trade system governed by the World Trade Organization

The Bretton Woods system was the result of a grand financial conference at the culmination of the Second World War. The participants were delegates drawn from 44 Allied countries that were in coalition against the defeated Axis powers. The main purpose of the conference was to organize and regulate the international monetary and financial systems, which were thrown into disarray during the war. The chief outcome of the event was the signing of GATT (General Agreement on Tariffs and Trade. The conference laid the foundation for the later emergence of World Bank and the International Monetary Fund. The priorities and economic models adopted by the WTO are a marked contrast to that of the Bretton Woods regime. The mantra of WTO since 1972 has been international trade liberalization. The Marrakech Agreement of 1995 officially replaced the other GATT regime. Although free trade is paid lip service, the arrangements are more favorable to countries and business corporations with bigger economic clout. However, within the WTO framework, trade deals are negotiated and formalized, just as disputes are arbitrated and resolved.

Coming back to the Bretton Woods Conference, it laid out a roadmap for the financial, trade and monetary policies of participant countries. Consultation, cooperation and consensus among the nations were the basic principle upon which several agreements were made. Even in an era preceding neoliberal globalization, the leadership of the Bretton Woods conference understood the interconnectedness of national economies. Since most of the nations were depleted in terms of resources and infrastructure at the end of the war, the immediate focus was on rebuilding and fostering peace. The conference succeeded in encouraging and creating open markets, which nicely counterbalanced national interest with economic stability. One of the means through which the Bretton Woods system was able to achieve this stability is by pegging foreign exchange market rates at a certain level. Some mild flexibility was permitted under special contingencies. Unlike the contemporary neo-liberal model, capital inflows into a country were also regulated to acceptable levels. Moreover, all participant nations were obliged to subscribe to IMF’s capital. Nations were also allowed to create a favorable balance of payments position for their economy. Hence, a fairly stable and sustainable system was established in the form of the Bretton Woods. One cannot claim the same with respect to the global economic regime in place under the WTO.